MYTH #5: says, “You can sell merchandise in your redemption prize center and make extra profits.” – NOT!

Once you place a price tag on an item, you are letting your customers know what your redemption point system is all about.  For example, if you purchase an item at a wholesale cost of $1.00 and the perceived value of this item in your customer’s mind is $4.00 you are off to a great start.  For those who are working on a 3/4 cent ($0.0075) per point, I recommend putting this item in the redemption prize center at 150 points.  The additional 12.5% (150 x $0.0075 = $1.125) to cover your actual cost of inbound shipping and sales tax will be included when you multiply the number of points times $0.0075.  If your games are set at an average ticket payout of 25%, a customer would spend approximately $4.50 in your games to receive 150 points.  When they win an item that they perceive is worth $4.00 plus some tax, they feel they have received their money’s worth in value plus entertainment fun.

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I have seen an FEC where every item in the redemption center could be purchased.  Prior to this practice, the redemption gross was $15,000 per week.  This FEC starting selling merchandise for twice what they paid for each item and one could use tickets and /or cash to get any prize.  The redemption gross dropped to $9,000 per week and the FEC owner bragged that he was making an additional $2,000 per week in profits, selling merchandise at the redemption prize center.  Actually, he didn’t make any additional money, but in fact lost $2,000 per week with this practice. Loosing $6000 in redemption games revenues with a 25% cost of sales translates to a loss of $4500. His customers originally thought that a ticket was worth $.04 but now realized that each ticket was worth only $.02.  What a rip-off!  By the way, this FEC went out of business six months later.

Read more  Perspectives on Industry Optimism

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Reprinted and updated from Fun Extra (IALEI), Issue #17, July 1996

Amusement Entertainment Management, LLC, we offer a full range of consulting services, including early-stage feasibility analysis, business plan development, funding assistance, and conceptual design and layout services.

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